Before he slipped out the back door of the Jefferson County Courthouse last year to become mayor of Birmingham, Larry Langford had to go to Miami to answer some questions from the Securities and Exchange Commission. As the commission president, Langford had chaired the county's finance committee, where he approved billions in bond refinancing, interest rate swaps and new debt.
By June of last year, when Langford sat down with the SEC investigators in Florida, many of those deals had begun to sour (but yet completely implode as they did in February). Also, the investment bankers and bond lawyers, who Langford had chosen, had overcharged the county significantly. By negotiating the deals rather than putting them out for public bid, Langford and his colleagues on the commission had cost the county millions in unnecessary fees.
Jason Berkowitz, an SEC attorney, asked Langford: "You mentioned that this whole process was politicized as far as who got awarded which offering which year. Did you ever consider having the county not do negotiated deals and actually bid these proposals?"
Langford answered: "No, not really, because that was not the practice of the commission before I got there. Personal services contracts, you know, are not required to have to give it."
Langford argued that these contracts had always been divvied out among the politically connected and he was just following the pattern. Still, Berkowitz was incredulous. He pointed out to Langford that lots of other municipalities solicit bids for the same kind of work.
"Did you ever consider it?" Berkowitz asked.
"Well, no," Langford answered. "I mean, obviously not."
If it wasn't obvious then, it is now. Because of those bad bond deals, Jefferson County is poised to be the largest municipal bankruptcy in United States history, even larger than the Orange County, Calif., bankruptcy of 1994. As Langford tiptoed out of that minefield to become mayor of Birmingham last fall, you might have thought he would have learned something.
Letting projects out for public bids has benefits beyond ensuring the cheapest price. That process also defines the work to be done more clearly and in writing. Also, it gives the city a better sense of what the right price should be.
Imagine for a moment that the city had solicited bids on a recent consuling. First the city would have drafted a request for proposals, commonly known among vendors as an RFP. That RFP clearly describes the work to be done and what is expected of the bidders who want it.
Next, let's suppose five companies submitted bids: one for $1 million, three for around $5 million and one for $8 million. The city could quickly tell the last bid was unreasonably high. Also, the first bid was conspicuously low. Those around $5 million were just about right. You probably learned about this deliberative process in kindergarten from Goldilocks and the Three Bears.
But not the mayor. He didn't learn anything from Goldilocks nor from the calamity at Jefferson County.
Since taking his new office, Langford has been generous with no-bid contracts, often to companies and individuals with political ties. When the city has solicited bids, it has sometimes used that old game of proprietary specs - making sure that only one vendor can qualify for a contract.
It was only a matter of time before he repeated the same mistakes.
In January of last year, the mayor's office recommended a $1.3 million no-bid contract for Tech Providers Inc., a Birmingham-based computer consulting firm. In exchange for that money, Tech Providers was supposed to install new software for managing employees and keeping account of the city's finances and also teach city employees how to use the new software. According to the city council resolution, the contract was supposed to last 12 months.
Nine months later, Tech Providers appeared again on the city council's agenda - for another contract to do essentially the same thing. This time, however, the price tag was $3.3 million.
The council balked, at least at first. It demanded more information. There was good reason to be suspicious. Beyond the obvious reasons, the owner of the company, Claude Estes IV, had also started another tech company, Ion Interactive, which received a $1.5 million no-bid contract to provide camera surveillance for the police department. Something wasn't passing the smell test.
The answers the council received from the company's executives outline a calamity of errors.
It seems that for at least a month after Tech Providers received its contract, it spent much of its time trying to figure out the scope of the job to be done. Also, there was friction between Tech Providers and the city's technology department. It was during this time that Mayor Langford fired the director of that department, John Wade.
Estes told the council that the company quickly realized it would was in for more work than it had expected. By the end of the summer, the company had spent the 1.3 million it received and needed much more to finish the job. On Tuesday, Estes couldn't promise the council that even another $3.3 million would be enough to complete the work.
It's worth noting at this point, if you divide up the total $4.6 million Tech Providers has requested among the 30 people the company has working on the project, that back-of-the-envelope math amounts to about $150,000 per person. Is that price too high? Without public bidding, it's hard to tell.
But there is something even more disastrous that has occurred during this process. When Tech Providers installed the new accounting software in July, it rendered the finance department incapable of producing monthly and quarterly financial reports. The Mayor-Council Act requires the mayor's office to provide those reports to the city council. In the past, the council has received a stack of spreadsheets, called the "blue book," every month. The blue book is essentially the city's equivalent of a bank statement. It allows the council, the media and the public to monitor how much money the city has, where it is coming form and where it is going.
The checks and balances provided by the Mayor-Council Act - the most significant internal controls in city government - have been crippled by the new-and-improved software, the people who were supposed to install it and the people who were supposed to run it.
It is time to be perfectly clear about something. The bond debt problems aside, Jefferson County's books have been in shambles since Langford left. Maybe that's not all his fault, but upon arriving at the city, Langford hired a new finance director - Steve Sayler, the former Jefferson County finance director who, according to Langford's testimony to the SEC, advised the commission to make so many of those rotten deals. Before Sayler retired from the county under pressure from the new commission majority, the county had very similar problems with new-and-improved accounting software. Even still today, the county's finances are unkempt and the county has not been able to produce an audited financial statement since Sayler left there in September 2006. Earlier this summer, when I asked Jim White of Porter, White & Company how long it would take to sort out the accounting problems there, he said to me, "Most of it, a few months. All of it, a few years."
The city has a mayor, whom financial calamity has followed everywhere he has been. The city has a finance director who presided over the biggest municipal finance disaster, perhaps in the history of this country. And in the thick of all of this, the city is not producing the financial documentation necessary for anyone outside the mayor's office to monitor what's going on. This week, Sayler and Tech Providers executives said it might be months before the new system will be able to produce something synonymous with a blue book. According to the timetable provided to the council, it might not work until April 2009.
If something like this happened in the private sector, someone would be fired, but that's not the way things work at the city. At Birmingham City Hall, they don't just reward failure. They tuck failure in at night and pack its lunch for school the next day.
Upon hearing all of this the mayor and the council cut the new contract from $3.3 million down to $2.7. However, the reason they did this was not because the contract was exorbitant. Instead, the councilors were upset that the mayor was using unspent money from their pet projects in their districts to fund the no-bid contract.
The mayor's office agreed to restore some of those projects and reduce the contract to $2.7 million. The mayor's office didn't even fuss much about it. Nor did anyone from Tech Providers argue the work couldn't be done for $500,000 less. No one on the council questioned how much more fat could have been trimmed. In the end, only councilor Valerie Abbott voted against the contract.
Earlier this week, Council President Carole Smitherman said she would be requiring greater financial accountability from the mayor's office, and many of her colleagues echoed that sentiment. But that rhetoric didn't match up with reality. It was, as we say in the vernacular, bullshit.
You could go broke very quickly betting on the city council to have a backbone. If things don't change, the city probably will.
War on Dumb is a column about political culture. Write to kyle@bhamweekly.com
Correction: Last week this column misidentified Claude Estes IV as Claude Estes III. Birmingham Weekly regrets the error.
By June of last year, when Langford sat down with the SEC investigators in Florida, many of those deals had begun to sour (but yet completely implode as they did in February). Also, the investment bankers and bond lawyers, who Langford had chosen, had overcharged the county significantly. By negotiating the deals rather than putting them out for public bid, Langford and his colleagues on the commission had cost the county millions in unnecessary fees.
Jason Berkowitz, an SEC attorney, asked Langford: "You mentioned that this whole process was politicized as far as who got awarded which offering which year. Did you ever consider having the county not do negotiated deals and actually bid these proposals?"
Langford answered: "No, not really, because that was not the practice of the commission before I got there. Personal services contracts, you know, are not required to have to give it."
Langford argued that these contracts had always been divvied out among the politically connected and he was just following the pattern. Still, Berkowitz was incredulous. He pointed out to Langford that lots of other municipalities solicit bids for the same kind of work.
"Did you ever consider it?" Berkowitz asked.
"Well, no," Langford answered. "I mean, obviously not."
If it wasn't obvious then, it is now. Because of those bad bond deals, Jefferson County is poised to be the largest municipal bankruptcy in United States history, even larger than the Orange County, Calif., bankruptcy of 1994. As Langford tiptoed out of that minefield to become mayor of Birmingham last fall, you might have thought he would have learned something.
Letting projects out for public bids has benefits beyond ensuring the cheapest price. That process also defines the work to be done more clearly and in writing. Also, it gives the city a better sense of what the right price should be.
Imagine for a moment that the city had solicited bids on a recent consuling. First the city would have drafted a request for proposals, commonly known among vendors as an RFP. That RFP clearly describes the work to be done and what is expected of the bidders who want it.
Next, let's suppose five companies submitted bids: one for $1 million, three for around $5 million and one for $8 million. The city could quickly tell the last bid was unreasonably high. Also, the first bid was conspicuously low. Those around $5 million were just about right. You probably learned about this deliberative process in kindergarten from Goldilocks and the Three Bears.
But not the mayor. He didn't learn anything from Goldilocks nor from the calamity at Jefferson County.
Since taking his new office, Langford has been generous with no-bid contracts, often to companies and individuals with political ties. When the city has solicited bids, it has sometimes used that old game of proprietary specs - making sure that only one vendor can qualify for a contract.
It was only a matter of time before he repeated the same mistakes.
In January of last year, the mayor's office recommended a $1.3 million no-bid contract for Tech Providers Inc., a Birmingham-based computer consulting firm. In exchange for that money, Tech Providers was supposed to install new software for managing employees and keeping account of the city's finances and also teach city employees how to use the new software. According to the city council resolution, the contract was supposed to last 12 months.
Nine months later, Tech Providers appeared again on the city council's agenda - for another contract to do essentially the same thing. This time, however, the price tag was $3.3 million.
The council balked, at least at first. It demanded more information. There was good reason to be suspicious. Beyond the obvious reasons, the owner of the company, Claude Estes IV, had also started another tech company, Ion Interactive, which received a $1.5 million no-bid contract to provide camera surveillance for the police department. Something wasn't passing the smell test.
The answers the council received from the company's executives outline a calamity of errors.
It seems that for at least a month after Tech Providers received its contract, it spent much of its time trying to figure out the scope of the job to be done. Also, there was friction between Tech Providers and the city's technology department. It was during this time that Mayor Langford fired the director of that department, John Wade.
Estes told the council that the company quickly realized it would was in for more work than it had expected. By the end of the summer, the company had spent the 1.3 million it received and needed much more to finish the job. On Tuesday, Estes couldn't promise the council that even another $3.3 million would be enough to complete the work.
It's worth noting at this point, if you divide up the total $4.6 million Tech Providers has requested among the 30 people the company has working on the project, that back-of-the-envelope math amounts to about $150,000 per person. Is that price too high? Without public bidding, it's hard to tell.
But there is something even more disastrous that has occurred during this process. When Tech Providers installed the new accounting software in July, it rendered the finance department incapable of producing monthly and quarterly financial reports. The Mayor-Council Act requires the mayor's office to provide those reports to the city council. In the past, the council has received a stack of spreadsheets, called the "blue book," every month. The blue book is essentially the city's equivalent of a bank statement. It allows the council, the media and the public to monitor how much money the city has, where it is coming form and where it is going.
The checks and balances provided by the Mayor-Council Act - the most significant internal controls in city government - have been crippled by the new-and-improved software, the people who were supposed to install it and the people who were supposed to run it.
It is time to be perfectly clear about something. The bond debt problems aside, Jefferson County's books have been in shambles since Langford left. Maybe that's not all his fault, but upon arriving at the city, Langford hired a new finance director - Steve Sayler, the former Jefferson County finance director who, according to Langford's testimony to the SEC, advised the commission to make so many of those rotten deals. Before Sayler retired from the county under pressure from the new commission majority, the county had very similar problems with new-and-improved accounting software. Even still today, the county's finances are unkempt and the county has not been able to produce an audited financial statement since Sayler left there in September 2006. Earlier this summer, when I asked Jim White of Porter, White & Company how long it would take to sort out the accounting problems there, he said to me, "Most of it, a few months. All of it, a few years."
The city has a mayor, whom financial calamity has followed everywhere he has been. The city has a finance director who presided over the biggest municipal finance disaster, perhaps in the history of this country. And in the thick of all of this, the city is not producing the financial documentation necessary for anyone outside the mayor's office to monitor what's going on. This week, Sayler and Tech Providers executives said it might be months before the new system will be able to produce something synonymous with a blue book. According to the timetable provided to the council, it might not work until April 2009.
If something like this happened in the private sector, someone would be fired, but that's not the way things work at the city. At Birmingham City Hall, they don't just reward failure. They tuck failure in at night and pack its lunch for school the next day.
Upon hearing all of this the mayor and the council cut the new contract from $3.3 million down to $2.7. However, the reason they did this was not because the contract was exorbitant. Instead, the councilors were upset that the mayor was using unspent money from their pet projects in their districts to fund the no-bid contract.
The mayor's office agreed to restore some of those projects and reduce the contract to $2.7 million. The mayor's office didn't even fuss much about it. Nor did anyone from Tech Providers argue the work couldn't be done for $500,000 less. No one on the council questioned how much more fat could have been trimmed. In the end, only councilor Valerie Abbott voted against the contract.
Earlier this week, Council President Carole Smitherman said she would be requiring greater financial accountability from the mayor's office, and many of her colleagues echoed that sentiment. But that rhetoric didn't match up with reality. It was, as we say in the vernacular, bullshit.
You could go broke very quickly betting on the city council to have a backbone. If things don't change, the city probably will.
War on Dumb is a column about political culture. Write to kyle@bhamweekly.com
Correction: Last week this column misidentified Claude Estes IV as Claude Estes III. Birmingham Weekly regrets the error.
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